German industrial production defied worst-case fears in April, but stagnation persists
Following the recent report on German industrial production, the desk interprets this as an indication of continued stagnation despite a modest uptick in activity. April saw a 0.4% month-on-month increase in industrial production, yet this remains insufficient to offset a persistently weak growth rate, with levels still 12% below pre-pandemic benchmarks. Per the full note , while construction activity positively contributed with a 2.4% rise, broader economic concerns fueled by geopolitical tensions and high energy costs weigh heavily on the outlook. As the macroeconomic landscape remains challenging, traders should remain cautious about sustainable rebounds in the Eurozone economy, particularly regarding EUR sentiment amidst shifting expectations.
What the desk is arguing
The desk frames this as a sign of underlying economic fragility. Despite a month-on-month increase in industrial production, challenges such as high energy prices and disruptions from the war in the Middle East continue to suppress momentum, with the economy bordering stagnation once again.
The 0.4% increase in April is juxtaposed against disappointing industrial orders, which plummeted by 3.8% month-on-month, highlighting inconsistencies in the recovery narrative. Furthermore, the construction sector's growth indicates isolated improvements rather than a holistic recovery.
Where it sits in our coverage
With the consensus target for EUR/USD set at 1.075, firms such as JPMorgan and BofA project the pair to fluctuate between 1.04 to 1.12 through to March 2026: - JPMorgan: 1.10 - BofA: 1.04
The desk's narrative of cautious optimism aligns closely with jpmorgan, favoring the higher end of the range as they anticipate some recovery. In contrast, bofa takes a more bearish view, positioning towards the lower end of the spectrum.
How other firms see it
The consensus predominantly supports a cautious approach, with aligned firms like jpmorgan and deutsche suggesting potential for cautious recovery, while contrary views from bofa reflect significant concerns about underlying economic health.
Market movements and sentiment in EUR/USD will closely reflect data on European manufacturing indices and broader economic indicators, especially considering central bank policies that could shift in light of these data points.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01German industrial production rose by 0.4% in April, but remains 12% below pre-pandemic levels.
- 02Construction sector growth of 2.4% indicates isolated positive trends amid broader stagnation.
- 03Weak industrial orders (-3.8% MoM) underscore ongoing economic vulnerabilities.
- 04Geopolitical tensions and high energy prices are significant headwinds for the Eurozone economy.
Market implications
Traders should monitor EUR/USD resistance at 1.08 and support near 1.04, bearing in mind the upcoming data releases that may influence sentiment. Watch for synchronization with broader economic indicators from the Eurozone as they will heavily influence market positioning in the coming weeks.
Risks to this view
A reversal in the current outlook could occur if geopolitical tensions escalate further, leading to even higher energy prices, or if upcoming GDP data significantly disappoints. Additionally, unexpected shifts in central banks' monetary policy could rapidly alter market perceptions.
Older quick take Quick take 07:25 Germany German industrial production defied worst-case fears in April, but stagnation persists Industrial production increased for the first time since the start of the war in the Middle East. However, the improvement was too little to bring any significant relief. Instead, industrial production is again close to stagnation rather than signalling a genuine turnaround German industrial production improved somewhat in April Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Carsten Brzeski Global Head of Macro German industrial production improved somewhat in April, but clearly too little to start discussing whether German industry is defying the economic fallout of the war in the Middle East.
Instead, the just-released industrial data for April illustrate the struggle of German industry to gain momentum this year. While industrial production increased by 0.4% month-on-month in April, from -0.1% MoM in March, production stagnated in the first four months of the year. In fact, industrial production is still some 12% below its pre-pandemic level.
What is more encouraging, however, is the increase in activity in the construction sector (+2.4% MoM). At the same time, export growth surprised to the upside at 0.9% MoM, from 0.5% in March. As imports increased by more than 1%, the trade surplus remained almost unchanged.
Stagnation instead of new beginnings Despite weak industrial activity, the German economy surprised positively in the first quarter. Exports and government consumption were the main growth drivers. The sharp inventory reduction suggests that companies emptied their shelves to meet external demand.
Looking ahead, the war in the Middle East, high energy prices and possibly supply chain frictions have not only dented previous growth optimism but seem to have pushed the entire economy closer to stagnation once again. Yesterday’s disappointing industrial orders data in April (-3.8% MoM) unfortunately confirmed this rather downbeat picture. Both the momentum in domestic defence orders and in stockpiling anticipating potential new supply chain frictions is gone; at least for now.
Industrial orders experienced a real boom after last summer, when orders increased by more than 4% MoM for four consecutive months. Unfortunately, in the first four months of the year, industrial orders dropped by more than 2% on average every single month. This rather sombre outlook is confirmed by a further weakening of production expectations.
More importantly, the lack of equipment as an impediment to industrial activity is increasingly a problem, hinting at potential new supply chain frictions. All in all, this morning's industrial production data show that the hoped-for industrial rebound in 2026 has been shelved once again. Even the first monthly increase since the war in the Middle East started does not bring new optimism.
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